What is a Pre-approval?

A pre-approval is an early assurance from a mortgage lender. It states that you meet the necessary credit requirements for a home mortgage for a specific loan amount, subject to verification. And, if you get a pre-approval from one of our lenders, you'll be able to instantly print out a pre-approval letter that states your borrowing power and includes the lender's name and address.

It is a good idea to get a pre-approval, whether or not you've found a house. Since a pre-approval gives you a good idea of the amount of money you are eligible to borrow, it lets you focus your search on homes that are within your price range.

Once you find a house, a pre-approval letter strengthens the offer you make to the seller. It demonstrates your financial strength and shows the seller that you have the ability to buy the house. Although a pre-approval letter is not a final loan commitment, it can be shown to listing brokers when bidding on a home. Home sellers prefer to accept offers from pre-approved buyers.

4 Reasons to Get Pre-approved

Getting pre-approved for a home loan only requires a minimal amount of information from you -- much less than what is needed on a typical loan application -- and by using one of our lenders, you'll receive a response in minutes! Plus, most lenders who grant you a pre-approval letter will only require that you update your pre-approval information to confirm that your financial picture hasn't changed since the pre-approval letter was written.

So why put in the time up-front getting pre-approved? The following four reasons should make clear why being pre-approved is a smart decision:

  1. Pre-approval Is More Powerful Than Pre-qualification. A pre-approval is an early assurance from a lender that lets you know that you already meet the necessary credit requirements for a specific loan amount (subject to verification). A pre-qualification only determines how much of a loan you might be able to afford. That's why a pre-approval is one step better than a pre-qualification.
  2. Know How Much Money You Can Borrow -- Up-front. A pre-approval gives you a good idea of the amount of money you will be eligible to borrow when you apply for a home loan. This knowledge enables you to focus your house-hunting efforts on homes that are within your price range and that are a good match for you.
  3. More Purchasing Power and Confidence When Negotiating. A pre-approval demonstrates your financial strength and shows the seller that you have the ability to buy the house. This helps put you on firmer ground when it comes to negotiating the price of the house. The sellers will know and respect that you are financially able to complete the transaction. And if they have multiple offers, your pre-approval could give you an edge over a bidder without one.
  4. Enhances Agent Performance. A pre-approval letter tells a real estate agent that you're a serious buyer. This is particularly important in a competitive real estate market.

Keep in mind that a pre-approval letter is not binding on the lender. Any change affecting your ability to pay -- including a job loss, an interest rate increase, new financial obligations you've assumed, or any other significant financial changes -- may affect your home loan pre-approval.

 

 

Pre-approval vs. Pre-qualification

The goal of pre-approval and pre-qualification is the same -- to demonstrate to the seller that you are financially qualified to make a valid offer.

Pre-approval is a step better than pre-qualification. A pre-approval is an early assurance from a lender that lets you know that you already meet the necessary credit requirements for a specific loan amount (subject to verification). A pre-qualification only determines how much of a loan you might be able to afford based on the information you provided to the lender. That's why a pre-approval is more valuable and carries more weight than a pre-qualification.

A pre-approval requires the following information:

 

To get pre-qualified you only provide the lender with basic financial information, which is not verified by the lender. As a result, a pre-qualification letter is merely an opinion of the lender based on the information provided by you. That's why a pre-qualification letter isn't as powerful as a pre-approval letter.